Finnish financial sector remained stable in 2020 - Risks in the operating environment mean continued uncertainty in the sector

The coronavirus pandemic and its prolongation have not significantly weakened the profitability of the Finnish financial sector. The outlook for and structure of the economy in the short and longer term are, however, subject to heightened uncertainty.

‘Society has supported businesses in many ways during the pandemic. However, the financial difficulties of companies caused by the prolongation of the pandemic increase the risk of a materialisation of loan losses. The uncertainty may also lead to rapid adverse changes in financial market pricing. The solid capital position of the Finnish financial sector, however, provides a buffer against these risks’, notes Anneli Tuominen, Director General of the Financial Supervisory Authority.

The Finnish banking sector's situation has remained strong, despite the economic uncertainty caused by the coronavirus pandemic.

The economic recession caused by the coronavirus pandemic has not resulted in a significant increase in the total amount of nonperforming loans, but the quality of and developments in the credit stock differ considerably between business sectors. Nonperforming loans increase and loan losses materialise typically with a lag during economic downturns.

There are already signs of an increase in credit risks in the sectors that have suffered most from the pandemic. The bulk of the support measures have been in these sectors. The ending of support measures increases the risk of growth in nonperforming loans.

Despite the heightened risk of loan losses, the Finnish banking sector is well positioned for supporting the sound and sustainable recovery of the economy, thanks to its strong capital buffers. The banking sector's capital position and possibilities to grant credit are better than the European average.

Non-life insurance companies’ solvency was strengthened by both the positive results of investment activity as well as the improvements in insurance business profitability. In all the investment classes, returns turned positive in the fourth quarter. The improvement in insurance business profitability reflected the decrease in claims expenditure. Claims expenditure decreased particularly in occupational accident and occupational disease insurance, which was most affected by the pandemic containment measures and the weakening of economic activity.

Many non-life insurance companies have had shortcomings in the handling of claims, particularly in compliance with the handling times of claims in statutory insurance, such as motor liability insurance, occupational accident and occupational disease insurance. The Parliamentary Ombudsman has received several complaints on the matter and has issued condemnatory decisions in regard to these.

‘The shortcomings show weaknesses in the companies’ governance, internal control and compliance functions. The FIN-FSA has taken supervisory measures in the matter,’ notes Anneli Tuominen.

Pension sector solvency weakened significantly during the first quarter of 2020, due to the decline in the value of investments. Solvency did, however, improve towards the end of the year. This reflected, in particular, the increase in the value of equity investments as growth expectations were boosted by support measures by central banks and governments.

Life insurance sector solvency remained good, despite a decline compared with a year earlier. Life insurance companies’ return on investment recovered in 2020 and was clearly positive at the end of the year. Premiums written on life insurance, however, began to decline again from the exceptional levels recorded in 2019. Premiums written decreased particularly in the case of new insurance policies.

The Financial Supervisory Authority describes also 2020 in its annual report just published.

Appendices

Financial position and risks of supervised entities page on the website (in Finnish)

Key financial figures page on the website

Financial Supervisory Authority Annual Report 2020 (in Finnish)

Presentation at FIN-FSA press conference on 16 March 2021

Recording of the press conference (in Finnish)